DEFA14A: Territorial Bancorp Recommends Shareholders Approve Merger with Hope Bancorp, Cautions Against Blue Hill's 'Illusory' Offer

Territorial Bancorp urges shareholders to vote in favor of the merger with Hope Bancorp, citing superior value and certainty compared to the unsolicited proposal from Blue Hill.

Summary

• Territorial Bancorp is recommending that its shareholders approve the proposed merger with Hope Bancorp.
• The board believes the Hope Bancorp merger offers compelling value, preserves the company's commitment to Hawaii, and mitigates the challenging operating environment.
• The merger is a 100% stock-for-stock transaction with a fixed exchange ratio of 0.8048 shares of Hope Bancorp for each Territorial share.
• The deal provides a ~25% premium to Territorial's unaffected stock price.
• The combined company is expected to realize $10.5 million in annual cost savings and synergies.
• The merger is expected to be immediately accretive to Hope Bancorp's earnings per share, with double-digit % EPS growth v. Territorial's losses as a standalone company.
• Territorial shareholders will see a 1,000%+ increase to Territorial's standalone dividend, increasing from $0.01 per share to $0.11 per share.
• The document strongly advises against accepting the preliminary indication of interest from Blue Hill, deeming it illusory, non-binding, and highly conditional.
• Territorial believes Blue Hill's proposal exposes shareholders to significant uncertainty and downside risk, including potential regulatory hurdles and a lack of transparency regarding financing and management.
• The document highlights that Blue Hill's offer lacks committed financing, has undisclosed investors, and has a registered business address that appears to be a residential home in Hudson, New York.
• The merger is expected to close by year-end 2024.

Sentiment

Score: 7

Explanation: The document expresses a positive sentiment towards the Hope Bancorp merger, emphasizing the benefits for shareholders and stakeholders. However, it also highlights the risks of remaining a standalone entity and strongly criticizes the alternative proposal from Blue Hill, creating a mixed but overall positive sentiment.

Positives

• The Hope Bancorp merger provides a significant premium to Territorial's shareholders.
• Shareholders can participate in the upside potential of the combined company.
• The merger preserves Territorial's commitment to Hawaii, its customers, employees, and communities.
• The combined company will be larger and more diversified, with a stronger capital position.
• The merger mitigates the challenging operating and regulatory environment that Territorial faces as a standalone company.
• The merger is expected to be immediately accretive to Hope Bancorp's earnings per share.
• Territorial shareholders will see a 1,000%+ increase to Territorial's standalone dividend, increasing from $0.01 per share to $0.11 per share.

Negatives

• Territorial faces a difficult operating and regulatory environment as a standalone company.
• Territorial has a single-market footprint with limited opportunities for growth.
• Territorial faces heightened regulatory scrutiny as a monoline, oneto four-family loan focused bank.
• Territorial's earnings are dependent on an undiversified portfolio, which involves significant interest rate risk.
• Territorial's capital constraints constrict growth.

Risks

• Difficulties and delays in integrating Hope Bancorp and Territorial and achieving anticipated synergies.
• Higher than anticipated transaction costs.
• Deposit attrition, operating costs, customer loss, and business disruption following the merger.
• Inability to obtain required governmental approvals of the merger on its proposed terms and expected time frames.
• Possible further deterioration in economic conditions in Hope Bancorp's or Territorial's areas of operation.
• Interest rate risk associated with volatile interest rates and related asset-liability matching risk.
• Liquidity risks.
• Risk of significant non-earning assets and net credit losses.
• Potential increases in deposit insurance assessments and regulatory risks.
• The outcome of any legal proceedings that may be instituted against Hope Bancorp or Territorial.
• The risk that any announcements relating to the proposed transaction could have adverse effects on the market price of the common stock of either or both Hope Bancorp and Territorial.
• Diversion of management's attention from ongoing business operations and opportunities.

Future Outlook

The combined company anticipates growth investments and is better positioned to navigate varying market environments. The merger is expected to close by year-end 2024.

Management Comments

• Territorial Board Unanimously Recommends that Territorial Shareholders Vote FOR Hope Bancorp Merger.

Industry Context

The document notes that the biggest banks continue to gain market share, highlighting the need for Territorial to gain scale through the merger with Hope Bancorp. It also mentions the challenges faced by independent mortgage banks in the current interest rate environment.

Comparison to Industry Standards

• The document compares Territorial's multiples relative to select company analysis: NM 2024 EPS estimates v. 10.2 x median and 3.88x v. 1.60x median.
• Territorial's loan loss reserves/loans of 0.39% is compared to more traditional community bank peers who report the same ratio at a median level of 1.18%.
• The document notes that 95% of merger agreements have a superior proposal provision, ~70% have a fiduciary standard for superior proposal, 95% have a termination fee, and ~92% of merger agreements do not include a go-shop covenant.

Stakeholder Impact

• Shareholders will receive a premium for their shares and have the opportunity to participate in the upside of the combined company.
• Employees will continue to receive competitive compensation and benefits, with new career opportunities.
• Customers will have access to an expanded array of banking products and services and benefit from enhanced technology platforms.
• Communities will continue to benefit from Territorial's legacy of community support and investment.

Next Steps

• Territorial shareholders will vote on the proposed merger with Hope Bancorp at a special meeting on November 6, 2024.
• The companies will continue to work towards obtaining the necessary regulatory approvals.
• Integration planning is underway.
• The merger is expected to close by year-end 2024.

Key Dates

Keywords

merger, Hope Bancorp, Territorial Bancorp, Blue Hill, shareholders, transaction, regulatory, Hawaii, banking